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Prevention is better than cure: our regulatory vision – areas worthy of attention

Prevention is better than cure: our regulatory vision – areas worthy of attention

Tuesday 11 January 2022

Prevention is better than cure: our regulatory vision – areas worthy of attention


MEDIA RELEASE: The views expressed in this article are those of the author and not Bailiwick Express, and the text is reproduced exactly as supplied to us

Emma Bailey, Advisory Director at KPMG in the Crown Dependencies explores areas worthy of attention for financial services businesses in the Channel Islands in 2022.

As we head into 2022, as with any other new year there is no better time to evaluate what you are doing, how you are doing it and to ask can it be done better? Though perhaps the more important questions are: what are you not doing that you should be? And do you need help to achieve it? The times we are operating in, with home working set to continue into the first few weeks of 2022 at least, make this corporate self-reflection even more vital. However, having the time to actually conduct this assessment whilst continuing with the day job is a luxury not afforded to many entities these days. This is where our KPMG Advisory team can help. 

So, what are financial services business in the Channel Islands facing in 2022 and beyond?  

Using the recent past to guide us: 2021 was bookended with the Jersey Financial Services Commission (JFSC) in February[1] and the Guernsey Financial Services Commission (GFSC) in December[2] issuing weighty enforcement fines. In the case of the Jersey subject, the fines were imposed for failures in policies and procedures which left the subject under-informed of whether they were operating robust systems and controls to mitigate against money laundering. In Guernsey the fines were laid against the subject for failing to monitor and manage the financial crime risks associated with its customers as required by the regulations and the rules.

As these enforcement cases show Anti-Money Laundering (AML) / Countering the Financing of Terrorism (CFT) will continue to significantly occupy both regulators’ time in 2022. The JFSC has already confirmed that its examination programme for 2022[3] is set to continue to focus on conducting financial crime examinations, whilst in Guernsey in 2020 the GFSC undertook 40 onsite inspections[4] covering AML and undoubtedly, they will have outperformed that number in 2021, with an expectation to increase it even further in 2022. 

It is therefore increasingly likely that entities in both islands that have not been visited for some time will have a high chance of being visited over the next two years in the lead up to the MoneyVal inspections in Jersey and Guernsey in 2023/4. If your firm is in this position your first area of attention should be a review of your AML policies, procedures and compliance and here our locally based KPMG risk and regulatory team can help by providing third party assurance reviews. Taking the time now for a review, before the inspection notice has even left the respective regulators’ outbox, will pay dividends for when they do eventually come calling (albeit it virtually). Even those firms that have received a regulatory inspection more recently will be subject to further scrutiny, especially in Jersey where the JFSC intends to test some of the remediation activities undertaken by Industry following previously completed examinations. Again, a third-party assurance review of the remediation action you have undertaken will provide the comfort that you need to make sure the JFSC is unlikely to discover any unresolved matters for themselves. 

Of course, AML/CFT will not be the sole focus for the JFSC and the GFSC in 2022. In recent years the number of amalgamations and mergers across the finance sector in both islands has outstripped levels previously seen. The regulators are kept busy with assessing these changes of control including, as you would expect, conducting due diligence on the parties acquiring the licensees against the relevant fit and proper criteria. Our advisory team is well versed in performing due diligence checks for both sides of the transaction, target firms and potential acquirers, and has expanded this service offering to cover another key area of consideration for the regulators – the integration plan

Where the proposed acquisition is by an existing licensee in either jurisdiction the regulators will place particular attention on the integration plan, and acquirers can expect to be asked in some detail about the plan in their early discussions with either the JFSC or GFSC. The acquirer’s history of similar transactions will be considered and may lead to closer scrutiny or potentially the imposition of conditions on existing or new licences. The lack of a coherent integration plan as part of the submission for approval of a new controller will lead to further enquiries from the regulators, inevitably causing delays in the approval process which in turn may impact on the acquisition timetable. The expectation is for a robust implementation plan at a minimum to cover the impact of the acquisition and subsequent merger operationally, but more importantly culturally, and to include steps to ensure the fair treatment of clients and the retention of good staff are both paramount in the process. We can assist with the drafting of the plan and its implementation ensuring that it is front and centre of the transaction from the outset. 

One final area that is often put on the “for tomorrow pile” is responding to consultations.  Fresh into the New Year both the JFSC and the GFSC have ongoing consultations: the JFSC are consulting on amendments to the AML exemptions and the GFSC is consulting on proposals for new Professional Indemnity Insurance (PII) requirements. Whilst often time consuming with little perceived reward, responding to regulatory consultations may prove to be more worthwhile than initially thought. It is an opportunity to influence how regulations are drawn up and attention paid now can often prevent the hardship of unintended consequences later. If, when considering consultations or newly introduced regulations, you are unclear as to the impact on your firm we can help by undertaking a gap analysis of your services against the new requirements.

It may be a cliché, but prevention is better than cure and taking the steps outlined above may help prevent your firm from hitting the regulatory headlines in 2022 and beyond. 

If you would like to find out more about how Emma and the KPMG Advisory team can help you and your business, please contact Emma on emmabailey1@kpmg.com or visit home.kpmg/cds.

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